The big picture: Continuity in policy

The big picture emerging from the budget is substantial continuity in economic policy, notwithstanding rhetoric about a new electoral mandate. The Left Front has not captured the government, as was feared by investors fleeing the stock market on May 17.

No populist spending spree is going to torpedo fiscal prudence. India will continue on its decade-old path of half-baked liberalisation. This will yield continuing half-baked success: 6 per cent GDP growth rather than the 7-8 per cent aimed for.

Compare Chidambaram’s budget papers with those of Jaswant Singh’s interim budget, and you will find thousands of entries that are identical. Arun Jaitley, former law minister, says that no less than 20 BJP programmes have been repackaged or plagiarised and presented as a brave new CMP (Common Minimum Programme) package.

Independent confirmation comes from N J Kurian of the Planning Commission, who writes in The Economic Times that most proposals to fulfil the CMP promises look like repackaged versions of ongoing schemes.

Two years ago, India had an unprecedented mountain of 63 million tonnes of foodgrain, and unsaleable mountains of sugar and cotton. Can heartless neglect really generate record surpluses?

NSS data shows that poverty declined from 36 per cent in 1993 to 26 per cent in 1999-2000, the most rapid rate of poverty reduction ever.

The Economic Survey says that the proportion of people saying they do not get enough to eat has plummeted from 15 per cent in the early 1980s to just 2.1 per cent in the rural areas and 0.4 per cent in the urban areas in 2001-02. Gross neglect of the poor, would you say?

Well, you might say, it is indeed scandalous that after 57 years of independence we are poorer than Indonesia instead of being richer than Korea.

True, but this is the outcome of 57 years of poor policies and worse implementation, of which the NDA can take the blame for only six. The main culprit is the party that is back in the saddle. For this reason too, expect much continuity.

Marxists complain vehemently that Chidambaram has gone beyond the CPM in raising the FDI limit in telecom from 49 per cent to 74 per cent of equity, and in insurance from 26 per cent to 49 per cent.

Chidambaram’s reply should be that the CMP is a minimum programme, not a maximum one, and any government should strive for more than the minimum.

He has proposed a pilot project to institute food stamps for the poor to replace the dysfunctional public distribution system, which leaks furiously.

The Left protested noisily in Parliament when the proposal was made and will continue protesting outside. But this is a welcome sign that the Left Front has not captured the government.

Leftist noise signifies the start of the campaign for the 2006 state elections in West Bengal and Kerala, which will pit the Left Front against the Congress. This must not be mistaken as portending coalition collapse in New Delhi.

The Marxists hate the Congress, but hate the BJP even more, and will not let the NDA regain power. So, despite its modest numbers in Parliament, the Congress is strongly placed, and can afford to assert itself quietly. Chidambaram has done so. \ Independent estimates suggest that implementing the CMP pledges on education, health and employment could cost up to Rs 300,000 crores, enough to bust the exchequer.

But Chidambaram has provided only Rs 10,000 crores extra for the remaining part of 2004-05.

Why not more? Because the states do not have the absorptive capacity for even this much, says Chidambaram. Year after year, they return Plan allocations unspent. Lesson: the sheer incompetence of the states will save us from a profligate spending spree.

So, Chidambaram may indeed be able to bring down the revenue deficit to zero by 2009, as promised. His proposed steep reduction this year of the revenue deficit to 2.5 per cent and fiscal deficit to 4.4 per cent depend on very rosy revenue assumptions.

He assumes a 25 per cent increase in tax collection although nominal GDP will rise only 12 per cent. He projects corporate tax to rise a whopping 40 per cent, an unbelievable boom.

So, he must believe that India (or at least the Indian industry) is shining like never before, regardless of what his party manifesto says.

I suspect, that he will not hit his tax targets, and so the revenue and fiscal deficits will be higher than budgeted.

This has repeatedly happened in the last decade of half-baked liberalisation. Lots of continuity here.

Investors will like continuity. True, 6 per cent GDP growth looks pathetic compared with China’s growth. Yet, India’s 6 per cent rate is second only to China’s among all developing countries in the last 20 years.

This is obviously way below India’s potential, but no more than you can expect from half-baked liberalisation.